Utilizing the Work Opportunity Tax CreditNovember 15, 2013
Learn more about tax breaks associated with hiring certain new employees.
Hiring has been constrained across all sectors as companies seek to recover from the effects of the recession and shield their bottom lines from further economic volatility. However, the benefits of the Work Opportunity Tax Credit may enable both private sector and qualifying non-profit organizations to meet their hiring needs, while also earning tax breaks that could lower their tax liability.
Under the program, employers can claim a tax credit on their federal taxes for each qualifying new hire that falls within a targeted group that has traditionally faced barriers to employment. The amount of the tax credit is based on the wages paid to each eligible worker, and may range from $2,400 to $9,600, depending upon the qualified employee’s targeted group. For the purposes of the tax credit, listed below are qualifying targeted groups:
- Temporary Assistance for Needy Families recipients
- Supplemental Nutrition Assistance Program recipients
- Columbia/Sumter Empowerment Zone/ Marlboro County Rural Renewal Community residents
- Vocational Rehabilitation or Ticket-to-Work participants
- Recently released ex-felons
- Supplemental Security Income recipients
- Disabled veterans who within in the last year were discharged or unemployed for six months or longer
- Unemployed veterans
- Veterans receiving SNAP
Eligibility for the credit
Employers who hire a member of a targeted group will be required to adhere to several criteria before being permitted to claim the credit. Hires must work a minimum of 120 hours in order for companies to claim the credit. In addition, companies must obtain certification that an individual is a member of a targeted group by filing Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Tax Credit with the Internal Revenue Service.
Guidelines, restrictions for private and non-profit companies claiming the credit
The rules differ greatly for taxable companies - or private firms - claiming the credit versus tax-exempt businesses that take advantage of the WOTC. In the case of taxable firms, employers may claim the benefit if they hire members of a targeted group who begin work prior to Jan. 1, 2014.
Qualified tax-exempt organizations, however, may only claim the credit for qualified veterans who began work on or after Nov. 22, 2011, and before Jan.1, 2014. Tax-exempt employers are not permitted to claim the WOTC for other targeted group members.
Categories and credit amounts of qualifying veterans
For tax purposes, not all hired veterans are treated alike with regard to WOTC eligibility. Listed below are the parameters employers should abide by when determining the various categories of eligible veterans and the amounts they are permitted to claim.
- Veterans who received SNAP for 3 consecutive months within the last 15 months: Maximum wages ($6,000), Maximum tax credit ($2,400).
- Veterans who are entitled to compensation for a service-connected disability and were discharged from the military no more than 1 year prior to the hiring date: Maximum wages ($12,000), Maximum tax credit ($4,800).
- Veterans who are entitled to compensation for service-connected disabilities and were unemployed for at least 6 months during the year prior to the hiring date: Maximum wages ($24,000), Maximum tax credit ($9,600).
- Veterans who were unemployed for at least 4 weeks and less than 6 months during the year prior to the hiring date: Maximum wages ($6,000), Maximum tax credit ($2,400).
- Veterans who were unemployed for at least 6 months within the year prior to the hiring date: Maximum wages ($14,000), Maximum tax credit ($5,600).
With regard to other targeted groups, employers who hire long-term public-assistance recipients may claim a credit of up to $9,000 in the first two years of employment. Additionally, the WOTC for other non-veteran target groups is $2,400 for the first year.
For more information on the work opportunity tax credit or assistance with claiming the credit, please contact the KLR Tax Services Team.